Qudus means 'holy' or 'sacred'. The narrations (ahadith) which are called ahadith Al-Quqdsi are those which mention something that Allah swt says. In other words, a hadith qudsi (Arabic plural: ahadith qudsiyyah) is a statement in which Prophet Muhammad (peace and blessings be upon him) reports a statement and he refers it directly to Allah.
Such reports are also called hadith rabbani or hadith ilahi (divine hadith).
Unlike prophetic hadith (hadith nabawi), the chain of transmission is traced back directly to God instead of ending with the Prophet PBUH.
Is hadith Qudsi verbatim word of Allah:
It refers to a saying (hadith) of the Prophet Muhammad PBUH in which the meaning is revealed by God and the phrasing is formulated by the Prophet PBUH.
Difference between Hadith Qudsi and Quran:
In contrast to the Quran, which is considered divine revelation in both meaning and wording, the authenticity of sacred hadith varies from one narration to another, and they may not be recited in prayer. They function as extra-Quranic revelation.
While the common factor between the hadith qudsi and the Qur’an is that both contain words from Allah that were revealed to the Prophet (peace and blessings be upon him), they are, nevertheless, distinct from each other as pointed out here:
The Qur’an contains the verbatim words of Allah, while a hadith qudsi contains the message of Allah conveyed to the people by the Prophet (peace and blessings be upon him) in the Prophet’s own words.
The Qur’an is inimitable and unique, but such is not the case with a hadith qudsi. This is so because the latter is not the verbatim word of Allah.
The Qur’an is recited in every Prayer but a hadith qudsi cannot be recited in any Prayer.
The Qur’an was revealed via Angel Jibreel while the hadith qudsi may have been inspired by other ways, such as in the form of a dream.